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Friday 18 July, 2008  

Good morning

Our lovely summer continues apace, but I'm already starting to wonder, even while the days remain warm and hot, if I'm noticing the slightest hint of darkness approaching ever earlier in the evenings?

The more things change, the more they remain the same?  Last Friday saw the much ballyhooed release of Apple's new iPhone 3G, the successor to the original iPhone, launched almost exactly one year previously.

In both cases, Apple did an excellent job of scoring a huge amount of pre-launch (and very favorable) publicity for their new products.  But, also in both cases, the first day of sale became a terrible mess, with collapsing systems, long lines, and huge waits to buy phones and problems getting them activated.

Even more astonishingly, as of Thursday evening this week, many of their stores are still having supply problems and are unable to satisfy customer demand - my local Bellevue WA Apple store reported on Thursday afternoon there was a two hour wait to buy a phone and uncertain inventory, insufficient to meet daily sales needs.  They couldn't give me any clear assurance of when inventory bottlenecks would resolve themselves and people would be able to just walk in, buy a phone, and walk out again five minutes later.

Again in both cases, the actual iPhone itself proves to be outstanding in some areas, but very flawed in others.  Even more disappointingly, many of the major weaknesses of the original iPhone have been carried forward to the new iPhone 3G without improvement - even something as fundamental as not being able to cut/copy and paste text still remains impossible - this is a massive functional limitation on a device that claims to offer a professional grade email solution.

Most commentators are repeating Apple's line about the new iPhones costing only $199 or $299 - compared to the previous version which sold for $399 - and only a few are bothering to point out that there is an offsetting $10/month increase in the monthly service contract from AT&T.  With a minimum 24 month contract period, this means you'll actually end up spending more on a so called cheaper new iPhone and its two years of service than you would have with the earlier one - surely a relevant point for potential purchasers to consider.

Actually, there are a whole bunch of relevant points for potential purchasers to consider, many of which have been overlooked by the generally uncritical commentaries on what, for sure, is a lovely looking phone.  And so, into that breach I leap, with a detailed and two part look at :

This Week's Feature Column :  All you ever wanted to know about the new iPhone 3G : In a two part article, I look at what is new and great, and what is disappointingly neither new nor great, about the new Apple iPhone 3G, and compare the unit to present and likely future competitors. Should you buy one? Read the articles to find out.

Dinosaur watching :  My comments last week about the negligible effect speculation has on the price of oil - contrary to what the airlines and some Congressional hotheads, quick to jump on a bandwagon are claiming, drew some responses, including a few skeptics who presumably felt that a consensus of all the major airline CEO's was more likely to be correct on a complicated economic point than the opinion of a single lonely writer working by himself.

So I'd like to offer two further comments on this point, neither of them my own.  The first is from a gentleman by the name of Ben Bernanke - yes, the Chairman of the Federal Reserve, who earlier this week was giving testimony to the Senate Banking Committee.  He was quizzed on this point, with several of the committee members trying to get his agreement that heavy investments in the futures markets were artificially driving the soaring increases in oil prices.

In response, Bernanke said, several times, that he did not view speculation as necessarily bad, adding that some investors [such as, eg, airlines with fuel hedging programs], needed to buy energy futures to hedge against volatility in prices.  Rather than blame speculators, or even 'manipulation' of the market, he endeavored to explain to senators that energy prices were driven by fundamental factors like, ummm, supply and demand.

'Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,' he explained patiently.  'On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.'

A rise in demand without a matching rise in supply?  Even a first year Economics dropout knows what happens in that scenario.

Bernanke also said the decline in the dollar had 'contributed somewhat' to higher oil prices but insisted that the 'principal drivers' were supply and demand.

The second commentary comes from the esteemed Economist magazine.  In an article with the heading 'Don't Blame the Speculators' and the subheading 'Politicians who try to make oil cheaper by restraining speculation will just make things worse' it attempts to sort out the facts from the rhetoric, and concludes that speculators actually help airlines rather than hinder them :

Despite their dismal reputation, the oil speculators provide a vital service.  They help airlines and other big oil consumers to hedge against rising prices, and so to reduce risk—a massive boon amid the economic turmoil.  By the same token, they provide oil producers with more predictable future revenues, and so allow them to expand more confidently and borrow more cheaply.  That, in turn, should help to lower the price of oil in the long run.  Any attempt to curtail speculation, by contrast, is likely to make life harder for firms and oil more expensive.

If you're interested, it is a well written and short article, with easy to follow logic.

So, who is more likely to be right?  The Federal Reserve Chairman, the Economist magazine, and, ahem, your humble scribe, or a bunch of self-serving airline executives and politicians?

Airlines are reporting their second quarter earnings.  American reported a net loss of $1.4 billion, but this included $1.1 billion in special one-off write-offs; I guess they decided to follow the age-old adage 'if you're going to have a bad quarter, make it a really bad one'.

Delta also decided to dump a bunch of woe and misery into its bottom line, and its one-off special charges managed to transform an initial $137 million net income into a loss of $1 billion.

Wait - say that again slowly - Delta would have had a profit of $137 million if it weren't for one-off special charges.  That sort of conflicts with the tales of doom and gloom that the airlines are telling to anyone who cares to listen.

Continental had a small loss of $25 million before special items, and after special items, the loss reduced to only $3 million.  Hardly a terrible result for Continental, either.

But it suits the airlines to cry doom and gloom, in the hope they might get some government support, and because anything bad that happens to them is always someone else's fault.

It also makes them look like heroes if they can still make a profit, and it softens us, their passengers up, so our expectations are lowered and lowered and lowered on the basis of 'we have no right to expect free baggage checking service (or free food, or free drinks, or truly free frequent flier awards, etc etc), because the airline can't afford it'.

Want to see a classic example of an airline CEO prophesying doom and gloom?  Look no further than the man who made a fortune out of being a professional underdog, Sir Richard Branson, Chairman and founder of Virgin Atlantic Airways.

In this article he is quoted as saying 'there will be spectacular casualties in the airline industry over the next 12 months'.  He also predicts one of the major US carriers 'will almost definitely go' (presumably he means go out of business).

But (and there's often a small but in his commentaries) he is willing to munificently help the industry himself by buying a controlling interest in competing British airline bmi.

bmi (don't you hate stupid airline names with incorrect capitalization) has become a hot property ever since the open skies agreement opened up the routes between the US and Heathrow to competition.  bmi controls 11% of the Heathrow landing/take-off rights (or 'slots' as they are called), and with each slot worth as much as $60 million (depending on what time of day it is scheduled for) this is a massive asset.

Alas, bmi has had to admit to some embarrassing difficulties protecting its slot entitlement.  Slots at Heathrow are allocated on a 'use them or lose them' basis - if they aren't using their slots 80% of the time, they run the risk of forfeiting them.

The big loophole in this is that an airline must operate a minimum number of flights, but not a minimum number of passengers, and so bmi admitted that is has been flying some 'ghost flights' just to keep its numbers up.  A 'ghost flight' is one that is fully or almost fully empty, operated purely to keep the utilization numbers looking good.

If bmi can't use its slots as part of its ongoing operations, but still wishes to keep them, clearly it is doing so only to maximize its value to a potential purchaser.  I'm not sure Sir Richard would be likely to pay maximum value for anything, and his doom and gloom speech might possibly be designed to talk down the value of bmi and its slots, but it would seem that bmi is certainly open for offers at present.

If you'd like, instead, a less self serving example of doom and gloom, a report has just been released by Destination Analysis, a San Francisco based research company.  They release a two-yearly 'State of the American Traveler' survey, and the 2008 survey, based on interviews with 1000 American leisure travelers, has some worrying predictions.  29.8% of interviewees plan to spend less on travel in the next 12 months, seeking out travel bargains and discounts.  Another third said they will visit less expensive destinations.

The main problems cited are high gas prices (57.8%), personal financial reasons (49.5%) and expensive airfares (35.2%).

This is bad news for the travel industry, but good news for travelers.  If travel volumes drop, you can be certain that there'll be matching drops in prices as competing travel companies vie for the remaining business out there and try and both take market share and stimulate the market with low priced offerings.

One thing is for sure - the travelers in this survey who said they'll be looking for bargains and less expensive destinations won't be going anywhere near Europe - which is also another blessing for those of us who will continue to travel there.  Tuesday this week the Euro hit a new all time high record against the dollar, breaking through the $1.60 mark.

If you are considering travel to Europe, and you are keen to find a bargain, don't forget river cruising.  Most of your costs are included in the US dollar fare, and some of the cruise companies (most notably high quality operator Ama(deus) Waterways) haven't increased their fares, set more than a year ago, even though the underlying Euro costs have skyrocketed.  The cruise price includes accommodation, all meals, some drinks, and most sightseeing, leaving very little for out-of-pocket costs.

Best of all, if you book any 2008 or 2009 Ama(deus) cruise through us, you get a 5% discount off their already great value brochure price.

And, of course, don't forget our Danube River Christmas Markets Cruise this December, your last chance this year to travel somewhere with none other than 'The Travel Insider' himself.  :)

The proposed DL/NW merger has been big on empty statements of synergy and efficiency and cost saving, and of course has been buttressed by the threat (?) that the airlines might go broke if they don't merge, but it has always been light on the specifics.  If we assume for a minute that both airlines are not profitable in their present standalone form, it is hard to see how combining two loss making operations will magically transform the total from - as it would simplistically seem - a bigger loss making entity into one which somehow magically becomes profitable.

While this somewhat strikes at the heart of one of the assumptions of western style business - ie 'economies of scale' and 'bigger is always better', past history is very light on examples of two loss making airlines successfully merging and transforming themselves into a profitable new airline, while there are plenty of examples of airline mergers that subsequently created no clear benefit.

And the preceding is all to do with the positive side of the coin.  The flip-side of the proposed merger - the negative side of the coin - is that NW/DL combined - what would become the largest airline in the world - would have more monopolistic pricing power.  Perhaps, in truth, that is where the so-called 'savings' and 'efficiencies' might come from - an enhanced ability to gouge passengers, and cut back on services.

An analysis of the proposed merger has just been released by the non-profit American Antitrust Institute.  Their finding - their five part analysis lists a series of ways in which travelers could be harmed by such things as restricted seat availability, higher fares, degraded service quality, and fewer choices.

Their conclusion - the merger should not be allowed.  Details here.

Without doing a similarly lengthy analysis, I'm inclined to agree.  DL and NW are already large enough to have fully realized any size based efficiencies and economies of scale, and in any event, there's no clear correlation in the airline industry between airline size and airline profitability.  The only obvious ways the merger can become more profitable than the two airlines trading separately are the ways that the AAI lists above - ways that harm the traveling public.

And, if the two airlines can't survive in an unmerged form, so what?  There are plenty of other airlines ready, willing, and waiting to pick up the pieces if either (or even both) NW and DL should cease operations.

I wrote briefly last week about new forms of advertising appearing on airlines as a revenue booster.  No sooner said than done - next time you print a boarding pass for a Delta flight, you'll see a series of advertisements appearing on the sheet of paper alongside the boarding pass.  There will also be clickable ads on the web page you accessed to print the boarding pass.

I have no problems with this, and neither should you.  Ads on otherwise waste space on a boarding pass printout don't harm us, and because they are often discount coupons for things at the place we're flying to, they might even benefit us.

American, Continental, Northwest, United and US Airways are joining with Delta as joint minority shareholders with an Omaha based company, Sojern, that coordinates the advertising - look for ads to appear on the other airlines' boarding passes too in the near future.

Northwest said that currently 40% of their passengers print their own boarding passes.

Members of the European Parliament have agreed airlines must include all airport taxes, fees and charges in the basic price advertised to travelers.  All known costs at the time of publication must be clearly set out.  The new rule had already been agreed upon by the EU transport ministers.  They want to end misleading promotions that advertise very-low ticket prices while leaving out the extra costs which purchasers must pay such as taxes, fuel surcharges, insurance surcharges, disability service fee, and anything/everything else the airlines can dream up.

Now if we could just get Congress to match with similar legislation here.

Every time I go to Las Vegas, I am amazed at the continued growth of the city.  New mega-hotels are always sprouting up left and right along the strip, and it seems like there are no limits to how big Las Vegas can grow.

Or are there some limits after all?  The casinos are not having an easy time these days.  Nevada casino revenue dropped 15.2% in May compared to May 2007 figures.

This is not a one-off - the figures represent the fifth consecutive month that revenues have fallen and the strip posted its worst figures for the year.

There's worse on the horizon.  When the various capacity cuts at airlines go into effect this fall, Vegas will likely be hit with a double whammy :  fewer seats to bring customers to the city, while at the same time, more hotel rooms coming on line to be filled.

Maybe we'll see a return to some of the bargains that used to make Vegas such an appealing place to visit, and which these last few years, with the city enjoying high occupancy levels, have become harder and harder to find.

In related news, McCarran Airport in Las Vegas has just awarded a $1.2 billion construction project to have a third terminal built, even though its major airline customer, Southwest, is concerned there won't be enough passengers to justify the cost.  And if growth oriented Southwest says that, people should listen.

The new terminal would be ready by early 2012, and by that time (less than four years) the city estimates there'll be another 30,000 hotel rooms in the city that will need filling every night.

Is Las Vegas finally over-reaching?

Travel + Leisure has released the results of their annual survey of best airlines.  The top 10 airlines lead with Singapore Airlines at number 1, followed by Emirates, Thai International, Cathay Pacific, Silk Air, Japan Airlines, ANA, Virgin Atlantic, Air Tahiti Nui and, in number 10 spot, Korean Air.

There are no US airlines on that list, and only one European airline.  I wonder what that means?

Thursday this week marked the 12th anniversary of the mysterious crash of TWA flight TW800 - a crash officially attributed to an explosion in an empty center fuel tank on the 747 (there were still fuel gases in the tank, in an explosive fuel/air mixture).  Many skeptics disagree with the official finding, but that's not the main reason for mentioning it this time.

Instead, it is relevant to note the glacial speed at which the FAA has responded to the official determination that there is a danger from empty fuel tanks on 747s - and on planes in general.  Fuel tank explosions have been linked to the loss of four planes (all Boeing) since 1989.  As well as the TWA 747 in 1996, there have been an Avianca 727 in 1989; a Philippine Airways 737 in 1990; and a Thai Airways International 737 more recently, in 2001.

I'm always amazed, when looking at a record like this - a steady loss of planes due to a consistent known weakness - at how slowly bureaucracy turns in terms of developing and requiring a solution to be implemented.  Cost is no object when it comes to responding instantly to vague security threats, and neither is any inconvenience or disruption to either airlines or passengers.

But if it is an ordinary boring flight safety issue, different rules seem to apply.  In this case, the government finally announced, one day before the 12th anniversary of the crash, that it was about to bring a new rule into effect, 'as early as next week' that will require airlines to fill empty center gas tanks with inert gas.

Now, what does 'as early as next week' mean (especially in the context of 12 years after the TWA crash)?  Well, the new rule would give manufacturers two years to start installing the devices onto new planes, and nine years to install them onto existing planes (but only those built since 1991, apparently no-one cares about planes older than that).

NTSB chairman Mark Rosenker congratulated himself and said 'Today we are raising the bar on aviation safety.  We believe this will save lives.'

A question to Mr Rosenker.  If this will save lives, why have you waited 12 years to release this rule, and why are you waiting up to nine more years to put it into place?  How many lives will, ahem, not be saved during the next nine years?

Note - the FAA had developed a device to inject inert gas into fuel tanks six years ago, in 2002.  It is estimated this device will cost between $90,000 and $300,000 a plane to add.

And talking about spending money on adding new safety devices to planes, here's an interesting article about planes being fitted with anti-missile lasers.  The systems, we are told in the article, cost more than one million dollars each.  As the animated graphics in the associated video shows, the system seems very impressive, with the laser 'blinding' the IR heat seeking 'eye' of the missile, causing it to veer harmlessly of course and miss the plane.

I'm left with two main questions (and plenty of minor ones).  The first question is - in a typical scenario, the plane will be above the missile, and so the laser will be firing down to earth.  What happens if someone on land looks up and the laser hits them direct in the face?  Will they be blinded, too?

The second question is that if this system works so well, and costs 'only' $1 million, why are they not fitted on all military planes, and why have SAMs (and IR based AAMs too) not been made obsolete by this new system?  Is it possibly just a little bit 'too good to be true'?

Minor questions include how does the system detect a missile launch, and what prevents it from false alarms?  If there is a danger from the laser beam to anyone caught in its path, how is the system balanced to be sure to detect real missile attacks, but not to trigger on things such as the sun reflecting off the windows of a building?

This Week's Security Horror Story :  A pilot, in full pilot uniform, while going through airport security, is discovered to have a knife in his carry-on bag.  It is taken from him.  Sounds marginally sensible?

Oh - I forgot to mention that the 'knife' is one of the short, stubby, rounded, blunt dinner knives that his airline gives, on the plane, with meal service to its passengers.  So you can safely be given such a knife, on the plane, by the airline, but if you are the pilot of the plane, you can't take the same knife on the plane with you?  Full details here.

Is this merely an amazing coincidence?  It is actually a small fear always playing at the back of my mind, too - and how terribly reprehensible that any of us should ever need to feel that way in this country.

And now, for a change, here's an interesting and reasonably positive article about the shadowy background forces that are hard at work protecting our air travel safety.

Great reading, although I can't help but get the feeling that the writer doesn't fully approve of several of the people she writes about.

Freedom of speech is of course both a bedrock foundation of our society and of free countries the world over, and the ability for dissident groups to safely and anonymously distribute their materials has been one of the activities that have kept the flame of liberty alight in some very unfree countries.

But did you know that almost anything you print on a color laser printer can potentially be traced back to you?  Most color laser printers these days will print a nearly invisible stamp on each page using only pale yellow ink, in very small size, that can't conveniently be seen unaided by the naked eye in white light.  The information printed includes the printer's serial number, and possibly the date/time of the page's printing too.

If you know where to look, and use a blue light and magnifying glass, you'll see the information.  And then - if you're a government agency, for example - you can ask the printer manufacturer for details of who has registered that printer with them, or, if that information is not available, they can possibly trace it through records of where and when the printer was sold, and possibly who to (most stores scan serial numbers and enter them into their sales transaction along with your information).

Free speech might remain free, but it is becoming less anonymous.  Add to that the growing fear of 'retribution' such as mentioned in the amazing coincidence article above, and the reality is that free speech is becoming less free.

More details here.

I've written before about the potential threat of having your laptop seized when crossing an international border (including when returning back to the US).  Not only does this potentially expose personal and perhaps corporate secrets to a whole range of government officials, but it may also cause you to be without your laptop for an unknown amount of time (and you did back up everything before your journey, didn't you?).

This threat has become sufficiently real as to cause many companies to issue corporate travel policies that forbid employees from carrying most data on their laptops when crossing borders.

Now there's a new potential intrusion as well.  The G8 is looking at plans to give airports the power to scan portable media players for copyrighted material when you fly under its upcoming Anti-counterfeiting Trade Agreement.  This would give custom officials the power to scan MP3 players, laptops and even mobile phones for illegally-obtained copyrighted material when passengers pass across borders.

The Anti-Counterfeiting Trade Agreement Measures form part of an international agreement aimed at stamping out piracy.

It isn't clear to me exactly how your friendly airport official will be able to determine if your copy of the latest hit tune is a legal copy or a pirated copy, and I suspect it isn't clear to the G8 dignitaries who are supporting this new invasion of privacy.  But you can be sure that it is a further intrusive step into our private lives that governments around the world will enthusiastically embrace.

According to this article, the government watch list of terrorist suspects has now grown to exceed one million records (with duplicates, this represents about 400,000 people).  About 20,000 names are believed to be US citizens, and the other 380,000 are foreigners.

While the government continues to reassure us about the accuracy and validity of this list, the consequences of being inappropriately on the list can be dire, to say the least.  This article reports the travails of one US citizen who was held for five hours, shackled to a chair, and kicked by a US Customs agent while trying to simply cross the border from Canada back to the US, as part of an interrogation due to his name incorrectly appearing on this list.

That's not the way we're supposed to treat guilty people, and it doubly isn't the way we're supposed to treat people who are guilty of nothing more than misfortune for having their name appear on a list of names that is known by everyone to be woefully inaccurate and full of errors.

The state security services of our country are becoming increasingly out of control and unaccountable to the people they are supposed to be serving.

I mentioned last week an interesting study published by Dell, that suggested as many as 2000 laptops are lost each week.  A reader who perhaps should be nameless has an interesting alternate perspective on this.  He writes :

Something not mentioned in the Dell study... a number of those laptops "lost" at airports are intentionally left behind.  Technology advances a lot faster than budget controllers will allow equipment to be replaced, unless of course you happen to lose one (wink, wink, nod, nod)....

One of my more obscure tasks at (a major airline) was helping Central Baggage crack passwords on laptops, including the ones left at (a major airline's major hub) checkpoints.  Let's just say that employers were always glad to get a call from us, but the end-users were not always as pleased.  I was surprised at first, but a fair number of the people we contacted had no desire for us to return them (shipping for laptops left at checkpoints was at customer expense).

And lastly this week, a common criticism levied at airport security workers is they have no common sense.  Typically this results in them banning things which, if they had half an ounce of common sense, they'd let through (as this week's security horror story evidences).

But, sometimes, the lack of common sense works the other way.  Here's a story from New Zealand, taken from the NZ Herald.

Never mind the nail scissors, what about the chainsaw.  A reader writes :

"My brother-in-law went through security at Auckland domestic airport and witnessed a passenger having to fish out her nail scissors from her handbag and leave them behind.  He went through security and then boarded his plane.

After being seated he could smell petrol.  He knew you shouldn't be able to smell petrol on a plane, because planes don't use petrol.  The smell got worse and eventually he got the attention of one of the flight attendants.

They started to look around to see where it was coming from.  They found in the overhead compartment a chainsaw in a bag that was leaking petrol into the compartment.

His plane was delayed as the owner was identified and the chainsaw removed and put with the main luggage.  The owner of the chainsaw said security had stopped him but had let him through because it wasn't one of the things on their list to confiscate.

Until next week, please enjoy safe travels

David M Rowell aka The Travel Insider

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